[ad_1]
In the year On January 5, 2023, the Federal Trade Commission (FTC) announced a rule that, if passed, would ban the use of non-compete agreements nationwide. As written, the FTC’s proposed rule would preempt current state laws on noncompetition agreements and require employers to repeal all existing noncompetition provisions within 180 days of publication of the final rule.
What are non-compete agreements and how do they apply?
Non-competition agreements are contractual provisions that prevent an employee from competing with the employer after the employment period ends. These agreements are generally governed by state law. While most states have passed laws that impose some restrictions on non-compete agreements, these restrictions vary widely. For example, three states – California, North Dakota and Oklahoma – have banned non-compete agreements with narrow exceptions. Other states, including Maine and New Hampshire, prohibit non-compete agreements unless the employee earns more than a certain threshold.
In Massachusetts, non-compete agreements entered into on or after October 1, 2018 are statutory. Except in certain circumstances, the season cannot exceed one year. Employers are also required to indemnify future and current employees for signing non-compete agreements. In particular, an employer is obliged to provide an employee with a “garden leave” (defined as 50% of the employee’s highest annual salary in the past two years) or “other under collective agreement” to sign a non-compete. Agreement. Finally, employers must comply with procedural hurdles for the noncompete to be enforceable, including providing notice of the right to counsel prior to the effective date and providing at least ten days’ notice. These restrictions have generally led Massachusetts businesses to reduce non-compete agreements as standard practice.
Proposed FTC ban on non-compete agreements
The FTC’s proposed rule would prohibit employers from imposing non-compete agreements on non-compete employees. The news is causing waves in the business community because historically the FTC has not attempted to regulate non-compete agreements between employers and employees.
While the proposed legislation does not expressly prohibit other types of restrictive covenants, such as non-disclosure agreements or non-solicitation agreements, it recognizes that those clauses may be broadly drafted to have the same effect as competition and may be used in practice. de facto non-compete agreements. Therefore, the proposed rule prohibits the use of any type of agreement that prevents employees from seeking or accepting new employment.
Moving forward
The FTC is accepting public comments on the proposed rule through March 10, 2023. Some businesses, trade groups and factions of Congress have voiced opposition to the proposed legislation and its broad scope. As a result, the final form of the regulation may not be that broad. Additionally, the lawsuits will undoubtedly challenge the FTC’s authority to prohibit non-compete agreements – which has long been left to individual states.
Against this backdrop, Massachusetts companies can take some positive steps to protect the integrity of their existing agreements. First, make sure any existing non-compete agreements are consistent with state law. Second, consult with counsel to strategize how to use other contractual tools (eg, non-solicitation and non-disclosure provisions) to protect their interests when the FTC rule is enacted.
Because non-competition agreements are heavily regulated in Massachusetts, the passage of the FTC bill may not make a big difference in the commonwealth. However, the regulation will affect millions of workers across the country and will be a sea change in employment policy nationwide.
[ad_2]
Source link
